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TMI Blog2018 (7) TMI 353X X X X Extracts X X X X X X X X Extracts X X X X ..... l gains on sale of shares and mutual funds and also received interest income from Bank and other parties. During the course of assessment proceedings, the Assessing Officer (AO) found that the assessee had earned capital gains amounting to Rs. 97,87,309/- on sale of shares under a Portfolio Management Scheme (PMS) with Surefin Consultants Pvt. Ltd. on sale of shares against which he had paid consultancy and operating expenses of Rs. 46,93,398/- to SCPL. Also out of total expenses of Rs. 46,93,398/-, the assessee had claimed Rs. 26,04,585/- against capital gains earned through PMS. The AO was not convinced with the above claim of the assessee on the ground that as per the mandate of section 48 of the Act, income chargeable under the head "Capital Gains" is computed after allowing deductions viz. (i) expenditure incurred wholly and exclusively in connection with such transfer, (ii) cost of the acquisition of the asset and (iii) cost of any improvement thereto from full value of consideration received or accruing as a result of the transfer of the capital asset. The AO held that the PMS fees paid by the assessee neither falls under the category of transfer fees, nor cost of acquisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'ble Gujarat High Court in Principle CIT v. Sintex Industries Ltd. (TA No. 291 of 2017). It is stated by him that in the aforesaid case, the Hon'ble High Court has held that when the assessee incurred expenses towards consultancy charges in order to make investment, the AO was not justified in treating and considering the expenses incurred towards consultancy charges as capital expenditure disallowable u/s 37 of the Act. Reliance is also placed by him on the order of the Pune Bench of the Tribunal in KRA Holding & Trading Pvt. Ltd (supra). 6. On the other hand, the Ld. DR submits that the case of the assessee in the instant appeal is distinguishable from Sintex Industries Ltd. (supra), in view of the fact that the issue therein was whether the AO was justified in treating and considering the expenses incurred towards consultancy charges as capital expenditure disallowable u/s 37 of the Act. It is submitted by him that herein the issue is whether the AO is right in disallowing the assessee's claim of Rs. 26,04,585/- on account of PMS fees against capital gains. The Ld. DR further submits that the decision in the case of KRA Holding and Trading (P.) Ltd. (supra) has been distinguis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against capital gains. 7.1 The Ld. counsel has placed reliance on the decision of ITAT, Pune in KRA Holding and Trading (P.) Ltd. (supra) which has been distinguished by ITAT, Mumbai in the case of Pradeep Kumar Harlalka (supra) as under:- "13. Coming to the decision of Pune Bench of the Tribunal in the case of KRA Holding & Trading (P.) Ltd. (supra), after perusing the judgment very carefully we find that in that decision the decision of co-ordinate Bench of Mumbai Tribunal in the case of Devendra Motilal Kothari (supra) was distinguished mainly on the basis of decision of Hon'ble Bombay High Court in the case of Smt. Shakuntala Kantilal (supra). The Pune Bench referred to various paras of Hon'ble Bombay High Court's decision in para-22 and ultimately concluded in para-23 that what was required was that the claim should be bona fide and claim for such genuine expenditure has to be allowed so long as incurring of the expenditure is a matter of fact and necessity. However, as pointed out by the Ld. DR this decision was specifically overruled by the Hon'ble Bombay High Court in the case of Roshanbabu Mohd. Hussein Merchant (supra) and at placitum 18 it has been obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 45 to section 55A falling under Chapter IV-E deal with assessment of income under the head 'capital gains' and section 48 in particular prescribes the mode of computation of capital gains. As provided in section 48, expenditure incurred wholly and exclusively in connection with transfer and the cost of acquisition of the asset and cost of any improvement thereto are deductible from the full value of the consideration received or accruing to the assessee as a result of transfer of the capital assets. [Para 12] In the instant case, the deduction on account of fees paid for PMS had been claimed by the assessee as deduction in computing capital gains arising from sale of shares and securities. He however had failed to explain as to how the said fees could be considered as cost of acquisition of the shares and securities or the cost of any improvement thereto. He had also failed to explain as to how the said fees could be treated as expenditure incurred wholly and exclusively in connection with sale of shares and securities. On the other hand, the basis on which the said fees was paid by the assessee showed that it had no direct nexus with the purchase and sale of shares and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reached or accrued to the assessee. The fee for PMS on the other hand was paid separately by the assessee to discharge his contractual liability. It was thus a case of an obligation to apply income which had accrued or arisen to the assessee and the same amounted to a mere application of income. Therefore, it was to be held that the payment of fees by the assessee for PMS did not amount to diversion of income by overriding title and the contentions raised by the assessee in this regard could not be accepted being devoid of any merit. [Para 17] As regards the contention of the assessee in support of claim for deduction on account of fees paid for PMS based on real income theory, the revenue rightly submitted that the theory of real income could not be applied to allow deduction to the assessee which was otherwise not permissible under the Act. In the case of CIT v. Udayan Chinubhai [1996] 222 ITR 456/88 Taxman 114 (SC), it was held by the Supreme Court in the similar context that what is not permissible in law as deduction under any of the heads cannot be allowed as a deduction on the principle of real income theory. [Para 18] For the reasons given above, it was to be held th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y assessee to various portfolio managers could not be allowed as deduction while computing capital gain arising from sale of shares kept in portfolio management services accounts held with various funds.
7.5 The Hon'ble Bombay High Court has held in Panjumal Hassomal Advani v. Harpal Singh Abnashi Singh Sawhney, AIR 1975 Bom 120 that a Co-ordinate Bench cannot refuse to follow an earlier decision on the ground that it is incorrect and/or rendered on mis-representation. This for the reason that the decision of a Co-ordinate Bench would continue to be binding till it is corrected by a High Court. Also in HDFC Bank Ltd. v. DCIT (2016) 383 ITR 529 (Bom), the Hon'ble Bombay High Court has stated at page 545 that the above principle laid down in respect of a Co-ordinate Court would apply with greater force on subordinate Courts and Tribunals.
8. Facts being identical, we follow the order of the Co-ordinate Bench in Devendra Kothari, Homi K. Bhabha, Pradeep Kumar Harlalka and Capt. Avinash Chander Batra narrated hereinbefore and uphold the order of the Ld. CIT(A).
9. In the result, the appeal is dismissed.
Order pronounced in the open Court on 30/05/2018. X X X X Extracts X X X X X X X X Extracts X X X X
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